During MPLT board’s meeting last week, the trustees reviewed their engagement in the State Small Business Credit Incentive program application by CDA. MPLT approved in principle a $10 million standby line of credit to shore up CDA’s application.
Board consultant Bruce MacMillan’s risk assessment report projected $2.7 million in potential loan reserve requirements of CDA.
MacMillan said one of the concerns with CDA’s application was its cash flow projection and ability to liquidate foreclosed properties.
His risk assessment report showed that CDA may be forced to draw down from MPLT’s $10 million line of credit.
MacMillan noted CDA’s inability to sell foreclosed properties in a timely manner at the projected values; inability to collect current loans to meet the cash flow projection; inability to receive from the Commonwealth Utilities Corp. the preferred stock dividends during the projection period; and actual loan losses occurring at an unmanageable rate.
In the event of a default on the standby letter of credit, MacMillan said MPLT would have to turn to CDA’s assets.
He anticipates, however, that it would take CDA about 10 years to sell foreclosed properties.
CDA reapplied for the $13 million federal grant on Oct. 14 with the goal of making available $130 million in loans in the CNMI in the next five years.
Under this program, CDA has to generate a minimum of $10 in private financing for every $1 of the $13 million grant.
But every $1 loan guaranty that CDA makes on a bank loan, CDA is required to set aside a 25 percent of the guaranty in cash reserve.
CDA’s first application was rejected and it re-filed its application last month with MPLT as back-up.
